buying stocks vs. options for short term trading

[spindr0]

I actually mean to help people who think they're making a nice safe bet with CC's and seeing those crazy naked put sellers as lunatics who risk everything.

I actually think there is a difference in that you can enter a higher margin position with naked puts than with CC's.

Covered call writers are often Buy & Hope types who rationalize away the risk of the entire position by saying "I was going to hold the position anyway" whereas when they hear the word "naked", they wander into fear of unlimited loss or in the case of a put, underlying loss down to zero, not realizing that the R/R is the same for each position (on a 1:1 basis).

In addition to the margin difference, there's the possibility of tax benefit on the CC side.

 

[beerntrading]

IRS rules are often vague and misleading (IRS Pub 550) and this issue of options and wash sales is no different.

I'd suggest that you research this further. Check out IRS Ruling 85-87 which states that if you sell stock at a loss and sell a put option within 30 days, the sale of the put option "COULD" trigger the wash sale rule. "COULD" is related to whether the put is "likely to be exercised." Phrases like "likely to be exercised" are where we get into trouble.

I'm not a tax expert but my two cents is that the short put sale triggers a wash sale violation.

Yeah, I broke out 550 yesterday and it had my head spinning. I was able to construct arguments that would support the IRS claiming a short put on a closed long shares positions would constitute a wash sale, but I was also able to construe it in such a way that it wouldn't. Unlike any other area where you're interpreting legalese, when dealing with the IRS, ambiguity goes into the rule issuer's favor, not the part the rules are written against.

I can say this, if you're talking about enough for the IRS to notice, you'll have to fight it. If it's small enough for them not to, it's not worth whatever you'd get if they did notice.

 

[ET180]

Yeah, I broke out 550 yesterday and it had my head spinning. I was able to construct arguments that would support the IRS claiming a short put on a closed long shares positions would constitute a wash sale, but I was also able to construe it in such a way that it wouldn't. Unlike any other area where you're interpreting legalese, when dealing with the IRS, ambiguity goes into the rule issuer's favor, not the part the rules are written against.

I can say this, if you're talking about enough for the IRS to notice, you'll have to fight it. If it's small enough for them not to, it's not worth whatever you'd get if they did notice.

I suspect that the intent of the law would be to classify selling an ITM put after selling stock as a wash-sale. However, the two are not the exactly the same (they don't have the same risk : reward profile so therefore are only correlated 1:1 up to a point). I think there's enough grey area that the IRS / lawmakers never got around to figuring out how to implement the rule. If my broker doesn't call it a wash-sale, then maybe it's not something that the IRS would challenge. Because if they challenge that -- shorting a put that may never be assigned, then shouldn't they also go after what Wealthfront does -- selling 1 ETF to buy another blatantly similar ETF with the same exposure? Intent is the same in both cases and Wealthfront advertises their practice.

 

[beerntrading]

I suspect that the intent of the law would be to classify selling an ITM put after selling stock as a wash-sale. However, the two are not the exactly the same (they don't have the same risk : reward profile so therefore are only correlated 1:1 up to a point). I think there's enough grey area that the IRS / lawmakers never got around to figuring out how to implement the rule. If my broker doesn't call it a wash-sale, then maybe it's not something that the IRS would challenge. Because if they challenge that -- shorting a put that may never be assigned, then shouldn't they also go after what Wealthfront does -- selling 1 ETF to buy another blatantly similar ETF with the same exposure? Intent is the same in both cases and Wealthfront advertises their practice.

I'd still get that second opinion here. Not sure how much money is in play, but I'm willing to bet it's a lot less than the cost of the fight if they start asking questions.

 

[spindr0]

I'd still get that second opinion here.

A woman sees a psychiatrist for the first time and tells him: "I saw another psychiatrist and he said that I am obsessive-compulsive, neurotic with controlling tendencies. I want a second opinion !!!" And he replies, "I think you're ugly too!"

OK, with apologies for that, https://www.greentradertax.com/ is a good source of trader tax information.

 

[qxr1011]

Lately I've been buying stocks with the intent to sell them a few days or a few weeks later. I sometimes feel like I have a good sense when a stock might go up (I will need enough real or paper trades over time to see if this is just luck). When that happens, I go buy 100-200 shares and then sell them for a profit.

the premise of the question in the title is that one knows how to consistently profitably to trade the stocks and therefore in order to maximize the return wants to trade options on the underlying stocks

i very much doubt the underlying premise...

if i am right - u don't need options , if i am wrong - more so

 

[murray t turtle]

What is the title and author of the book on day trading options? I like to learn how to day trade options.

Regards,

%%
Sorry i cant remember all the trash in my life- but that's life.
I get a lot more out of STABH [Stock Traders Almanac By Hirsch] Modern Trader magazine reprints some of that. BUT with 1st 4 or 5 days, in month tending to be very bullish , + DEC being 2nd best of OCT-APR, in QQQ, XLK, SPY/+.No wonder some are selling- scale out. I hope PT Jones is right on 2017 being like 1999, nut i'm not that bullish this week= maybe later near ChrisTmas Trends

 

[ET180]

the premise of the question in the title is that one knows how to consistently profitably to trade the stocks and therefore in order to maximize the return wants to trade options on the underlying stocks

i very much doubt the underlying premise...

if i am right - u don't need options , if i am wrong - more so

It's harder to make money buying calls vs. buying stock.
It's harder to make money buying puts vs. shorting a stock.
It's easier to make money selling puts vs. buying stock.
It's easier to make money selling calls vs. shorting a stock.

Reason why in all cases is because the premium changes your probability of receiving a profit.

 

[spy guy]

The Fact is nearly all pure option traders lose money. You may want to look over these articles - at least to get a different perspective. I know it's tempting. My friend worked at the largest U.S. broker at the time and had warned me to steer clear of options since the net positive accounts for pure options traders is horrendous.

Stock trading is not a zero sum game, trading options is.

http://sjoptions.com/portfolios/option-traders-lose-money/

https://seekingalpha.com/article/3993162-3-pitfalls-options-trading

not all short term option traders lose money, since sept 1 i have made 83 positive option direction trades in a row, i only trade spy simple calls and puts. since sept 1 i have made 75000.00 with an account starting at 48000.00. account is now 123000.00. i dont use indicators or exotic trades, just simple buying call and puts by price action. it can be done find a method that works for you and stick to your rules

 

[spy guy]

I only trade options. I do not like the symmetric risk profile of equities nor the binary P/L.
With options you can make money when the stock goes up or sideways or even down slightly (as an example).

Or, if you vet stocks carefully, you can make returns of 200 - 1000% on long options - even more on lucky hits. 3-4 months out is best. I do it all the time, but it is offset by a high loss ratio. So total returns are FAR lower than 'gurus' tell you. Sure, sometimes you get a great setup and pick the right option for 10X returns, but most of those setups lose money.

Or, you buy ITM options on stocks that you think will rise soon. Then you can get 60-200% returns for a lot higher investment.

Or, you can buy OTM leaps (12 months or more out) on mega-cap steady risers after a pullback - I've done this often enough to know it works. Leaps lose premium very slowly, so if you're sure a low-vol stock will rise at least 2-3% in the next few weeks, you can often make about 50%. And if it stays where it is, you can close it for almost no loss in a month or so.

i too only trade options there are many methods that work, find one that works and repeat